Despite Market Headwinds, Organigram Is Making Progress Toward Its Goals

Like most marijuana stocks, Organigram (OGI 2.63%) has underperformed the market in recent years, but in its most recent fiscal first quarter, the company showed off strong growth and a narrowing loss on the bottom line.

In this episode of "Beat and Raise" recorded on Jan. 21, Fool contributors Rachel Warren and Brian Withers discuss Organigram's prospects and what makes it unique.

Brian Withers: Organigram. I get it right.

Rachel Warren: Yeah, this is interesting. I read a lot and talk a lot about cannabis stocks , but this is not a company that I really follow, no. This was a new one. I didn't even really realize that it was a rec. It's probably because i tend to follow a lot of the US based cannabis companies a little more closely and this one is based and its operations are based in Canada.

Brian Withers: Well, you know it was funny. It's probably happened to you when you're in the investor website is you have to put in your age. [laughs]

Rachel Warren: Right.

Brian Withers: You have to put in your age and then you have to put in which province in Canada you live in. I'm like, none of the above. [laughs]

Rachel Warren: Sorry guys. There wasn't like an option to be like NA. I was like how about this one. I got to read this release. [laughs]

Brian Withers: They let them, so I guess I'm all right. [laughs]

Rachel Warren: That's very funny. Yeah, I'm glad that wasn't just me. But what's interesting about the Canadian cannabis market, recreational use of cannabis was legalized almost three years ago now, I think. That's been the case for some time. Organigram, they started as your classic medical cannabis provider, they have their own cultivating and production facilities. Founded in 2013. But now they also create a range of products targeting adult recreational use, and they have all of these different adult-use recreational cannabis brands and all these kind of fun names like Bag o' Buds or Shred, super creative.

Brian Withers: It almost reminded me of looking at a Monster Beverage investor relations page or Sam Adams, they had six, seven. They have tons of brands.

Rachel Warren: Yeah, a bunch of brands. Another thing that was interesting as well, when I was poking around is they have a proprietary information technology system called Organigrow and it's basically this database and they describe it as one that tracks all grow cycles, by harvest periods, strain, room, environmental conditions. They have this interesting technology piece to their business, and then, like I mentioned, they have this major cultivating facility in Canada, I think one that they own and one that they lease. Really wide ranging operations there. But I know we only have a few minutes so I want to go ahead and take a look at that report. Let me share my screen here. See how quick it is to load. Sometimes it takes itss time. [laughs]

But yeah, one of the interesting things this company has been trading since 2019, at least on the Nasdaq and then also trades on the Toronto markets. But it has definitely not been a market beating stock, but very few cannabis stocks are. Now, this is a very historically volatile market and industry. The stock often reflects that. Even a lot of other companies with really strong underlying businesses, you see a lot of that share price volatility, so something interesting to note as well. Another thing that's a little different about this company, they report their school year a little bit differently. This most recent report was actually for the first quarter of its fiscal 2022. Everything is in Canadian dollars, so just a little bit of a heads-up there to anyone who is watching. But what's interesting is the way that they divide their revenue. In Canada, medical cannabis is subject to a $1 Canadian per gram, excise tax. Then there's a lot of other, I believe, excise taxes that are applied as well to other types of cannabis. The way they report revenue, is they have their gross revenue and then they subtract those excise taxes, which obviously, the more products they sell, the higher those taxes are, so just something to be aware of, then as well their net revenue, but really a lot of strong growth.

Gross revenue was up 75 percent compared to the year ago period. Those excise taxes again, are paid per gram on a program basis, at least for medical cannabis. I wasn't able to dig too deep into the recreational cannabis tax laws, but that was up 135 percent year-over-year. Then it also indicates just the volume and the increase of how much product they're selling. I was reading in their press release, a couple of their brands have become some of the top cannabrands in the entire country. They're really growing at a rapid clip. But net revenue, you subtract those taxes from their gross revenue. They still ended up with 3.4 million Canadian dollars for the quarter, which was up 57 percent year over year. The company is operating at a loss, but it has significantly narrowed those losses, as you can see. In the year ago quarter, it reported a net loss of 34.3 million Canadian dollars, that was 1.3 million Canadian dollars in this most recent quarter, so that's an improvement year-over-year.

Another thing I like to check is how are these companies doing, especially that are growing so fast. They're spending a lot of money expanding their facilities, launching new products and partnerships. Its cash store was down a little bit year-over-year to the tune of 168 million Canadian dollars, but even so, that amount still vastly outweighs its total liabilities of 62.7 million Canadian dollars, which is something I like to see. It's in a good positioning cash wise. Narrowing its net losses, really doing great in terms of growing its revenue. This is definitely what I want to dig into a little further. Like I mentioned, I follow a lot of different cannabis companies, but this one, was a newer one.

Brian Withers: There's a question or a comment on Slido that mentions that OGI is at a 52-week low today. You can see what you have almost four or five-year history there and it's down 30 percent if you'd bought it at the end of 2015 or early 2016. It's been been highly volatile. They're vertically integrated, so they own their own growing facilities. It says it's a 14 acre facility, three tier, pretty high tech, so it'll be interesting to see, is this the bottom for these guys. They're growing.

Rachel Warren: Yeah, exciting actually. But don't let the share price deter you if you're interested investing in cannabis stocks. It's pretty common with these businesses for sure.

Brian Withers: Yeah, it's a pretty small business though, what 30-40 million in revenue and a pretty small market cap so, take that into account as well.